RESPs are 'registered education savings plans', and they grow tax-deferred until the beneficiary withdraws funds for post-secondary education. Students usually pay little or no tax on those funds when withdrawn, because a student is usually in a lower income tax bracket than the person who opened the plan for them. The income tax savings plus the government grants are what makes these plans so great!
Currently, an RESP has a lifetime contribution limit of $50,000 per beneficiary. Each beneficiary is eligible to receive a maximum of $7,200 - as Canada Education Savings Grant (CESG). Grant amounts are not included as part of the lifetime RESP contribution limit.
The Canada Education Savings Grant is a grant from the Government of Canada paid directly into an RESP that provides an additional 20% for every dollar saved for a child's education, and a bit more for low income families. Contributions to an RESP are only eligible for the Canada Education Savings Grant if the beneficiary is 17 years of age or under. In the year they turn 18 (even if they haven't turned 18 yet), they will no longer receive the Canada Education Savings Grant.
For example, if a family contributed $25 to an RESP every two weeks for a total of $650 per year, their RESP would receive a minimum Canada Education Savings Grant of $130 based on 20% of their total contributions. That's a total of $780 a year before considering growth.
If the family continues to contribute this amount each year for 15 years and we assume a 5% rate of return, the child would have $4,700 for each year of a four-year university program. Almost $800 a year would come directly from the grant.
The minimum RESP grant is 20% of RESP contributions, up to a maximum of $500 per year. A lifetime maximum of $7,200 also applies.
If you missed contributing in previous years, your RESP grant will still be 20% of contributions, but up to a maximum of $1,000 per year until it's caught up.
If you have a family income of $45,282 or less, you will receive an extra 20% on the first $500 contributed to an RESP.
If you have a family income between $45,283 and $90,563, you will receive an extra 10% on the first $500 contributed to an RESP.
If your family income is higher than $90,563, there is no additional grant above the basic CESG.
There can only be one beneficiary of an individual plan, but you can have multiple beneficiaries of a family plan - as long as they're blood related.
Blood relation includes a biological or adoptive connection between the person who contributes, and the person contributing has to be a parent or grandparent of the child beneficiary. Aunts or Uncles do not qualify as blood related.
If the beneficiary decides not to go to school, the person who contributed the funds can withdrawal their contributions tax-free and they can withdrawal the growth associated with their contributions as taxable income.
The government grants will have to be returned to the government, plus any growth associated with the government grant will also have to be returned. You wont be taxed on this amount.
When the beneficiary of the RESP has been accepted to full-time or part-time studies at a qualified post-secondary institution, you need to submit a withdrawal form and proof of enrollment.
Proof of enrollment needs to include: Your name, start date of course, and whether it's full-time or part-time.
Most common proof of enrollment documents are: Timetable for course load or a letter of acceptance.